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Investors Urged to Increase Government Bond Holdings in Anticipation of Potential Recession
A Shift in Market Sentiment
JPMorgan's top equity strategist, Marko Kolanovic, advises investors to buy more government bonds in preparation for a potential recession later this year. Despite a strong start to the year, with the Nasdaq Composite surging by over 30%, Kolanovic remains cautious and believes a year-end recession is likely. He warns that investors who are abandoning defensive positions and expecting a soft landing scenario for the economy are mistaken. To mitigate risks, Kolanovic recommends reallocating investments towards government bonds.
Trimming Credit Allocation
Kolanovic emphasizes the need to be defensive in portfolios and advocates overweight allocations to cash as well as underweight allocations to equities. In his model portfolio, he trims the allocation to credit by shifting two percentage points away from corporate bonds and into government bonds. Kolanovic expresses concern over the complacent pricing of recession risks and the emerging credit cycle, which further convinces him to reduce exposure to corporate bonds.
Poor Risk-Reward Profile in Equities
The JPMorgan strategist highlights several factors contributing to a poor risk-reward profile in equities. These factors include a decelerating economy, the expected onset of a recession in the late 2023 or early 2024, weakening consumer trends, rising investor positioning, and significant stock re-rating this year. Kolanovic underscores the exhaustion of excess Covid savings by October and the resumption of student loan repayments as notable headwinds. Given these considerations, he suggests caution and a focus on government bonds.
By increasing government bond holdings and adopting a defensive investment strategy, investors can better position themselves for a potential recession. Kolanovic's recommendation to trim credit allocation and overweight cash underscores his belief in the significance of the risk ahead. With the uncertainty surrounding the economy, it is prudent for investors to heed this advice and prepare for potential downturns.
Conclusion: How the Anticipated Recession Impacts New Businesses
The advice given by JPMorgan's top equity strategist, Marko Kolanovic, urging investors to increase their government bond holdings in anticipation of a potential recession, has implications for new businesses as well. While new businesses often face numerous challenges, the looming recession adds an additional layer of complexity that entrepreneurs need to consider and plan for.
One key aspect of Kolanovic's advice is the emphasis on a defensive investment strategy. This suggests that investors should adopt a cautious approach and prioritize the protection of capital rather than chasing potentially risky opportunities. For new businesses seeking funding or investments, this implies that investors may become more risk-averse and conservative in their investment decisions. It might become harder for startups to secure funding, as investors become more focused on low-risk options such as government bonds.
Furthermore, the overall economic landscape during a recession can impact the success and survival of new businesses. A decelerating economy and weakening consumer trends, as highlighted by Kolanovic, can result in reduced consumer spending and demand. New businesses will need to adapt their strategies to address changing consumer behaviors and find innovative ways to attract customers in a recessionary environment.
In conclusion, the anticipation of a potential recession and the advice to increase government bond holdings have implications for new businesses. Entrepreneurs should be aware of the challenges in securing funding and navigating a potentially weakened consumer market. Adaptability and strategic planning will be key for new businesses to weather the storm and emerge stronger in the face of economic uncertainties.
Article First Published at: https://www.cnbc.com/2023/07/11/jpmorgans-top-equity-guru-says-avoid-stocks-with-a-recession-looming.html